The Office-Level Effects of Audit Time Pressure

• In Event: Auditor Tenure, Quality, and Peer Review

Abstract

This study examines the audit office-level effects of SEC’s acceleration of the 10-K filing deadline. The extant literature provides evidence that the regulation increased client-level time pressure. We argue that because audit offices possess finite production capacity, client-level pressure can have office-level effects. We provide evidence that offices with more clients filing before the deadline have less time pressure or greater resource slack and are better able to accommodate client-level pressure. We show clients already meeting (not meeting) the deadline experience an increase (a decrease) in report lag, consistent with resources being transferred between these engagements This evidence suggests that clients of the same office are not uniformly affected by changes in office-level workload. We predict and find that both audit timeliness and audit quality are a function of office-level slack: clients of offices with greater resource slack file earlier and are less likely to restate. We also find the client-level effects documented in prior literature are a function of office-level slack. When office-level slack is high, client-level pressure is less likely to reduce audit timeliness and audit quality. Taken as a whole our results suggest that auditor’s response to increased resource constraint allows client-level pressure to produce office-level effects. Our results should be informative to regulators and practitioners concerned with the consequences of office-level capacity constraints.

Authors

• Bei Dong, University of South Florida

• Jonathan Nash, University of New Hampshire

• Le Xu, University of New Hampshire